Plunging home sales hamper China’s real estate sector’s recovery from the crisis

The shares of real estate developers in China is expected to record gains for the second consecutive week following government support measures this month, but the drop in selling still leaves investors wondering how long the rally will continue.

The Bloomberg index of Chinese construction companies rose 12% this week, after jumping to 1 record by 27% last week, even as gains eased on Friday.

The rebound came after a raft of government supports was introduced earlier this month, including a package aimed at easing liquidity pressures on developers and an easing of rules on the use of pre-sale proceeds. Meanwhile, this week’s government data showed that home prices fell the hardest in seven years in October.

Moody’s Investor Service said in a weekly report that real estate sales in China will decrease by 10% to 15% by the end of next year. He added that recent measures to help the sector “will come in in force slowly and will lead to a gradual recovery”.

This month’s housing bailout package will likely benefit private developers who haven’t defaulted yet, according to Bloomberg quoting industry analysts.

Chang Wei Liang, macrostrategist at DBS Bank – Singapore, wrote in a research note: “Policy guidance on loan term extensions and bond repayments should help the largest and financially strongest developers … entities that are already in default or on the brink of default, it’s unlikely you’ll benefit.”

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